Troutman Sanders LLP: Chesapeake Energy Announces New, $1 Billion Gas Plan

Troutman Sanders LLP: Chesapeake Energy Announces New, $1 Billion Gas Plan

On Monday, July 11, 2011, Chesapeake Energy Corporation ("Chesapeake") announced its plan to spend over $1 billion over the next 10 years in order to help spur the development and demand for domestic supplies of natural gas and oil.  Chesapeake stated that it hopes that its plan will help create a future transportation sector that runs on domestic supplies of natural gas and oil from deep shale and other unconventional formations.  In the process, Chesapeake believes that its efforts will help reduce U.S. demand for foreign oil, stimulate economic growth, lower energy costs, enhance national security, and improve the environment. 

The central piece of Chesapeake's plan is the creation of Chesapeake NG Ventures Corporation.  The $1.0 billion venture capital fund will identify and invest in companies and technologies that replace gasoline and diesel derived from the Organization for Petroleum Exporting Countries, to domestic oil, natural gas, and natural gas-to-liquids ("GTL") fuels.  Chesapeake has already agreed to two large investments for the fund.  The first is a $150 million investment in newly issued convertible debt of Clean Energy Fuels Corp., which will help create approximately 150 Liquefied Natural Gas ("LNG") fueling stations for heavy-duty trucks.  Second, Chesapeake will make a $155 million investment for a 50% ownership stake in Sundrop Fuels, Inc., which will help fund the construction of the largest nonfood biomass-based "green gasoline" plant in the world. 

Another part of Chesapeake's plan sets three specific goals to help move the U.S. to greater energy independence.  These goals include:

  • Increasing the production of domestic onshore oil and natural gas liquids ("NGLs") - currently at 8 million barrels a day - by 3-4 million barrels a day through advanced technologies in horizontal drilling and hydraulic fracturing;
  • Investing in enough compressed natural gas ("CNG") and LNG fueling stations so that manufacturers of all vehicular classes will increase their production of CNG and LNG vehicles; and
  • Deploying new GTL processes that will be able to convert natural gas into ready to use, room temperature fuel that can either be blended with existing supplies of gasoline and diesel, or used as a stand-alone replacement product. 

Finally, Chesapeake announced some of the steps it will take internally to further encourage demand for domestic natural gas and oil.  First, Chesapeake will convert 4,500 light duty fleet vehicles to run on CNG and 400 heavy duty vehicles to run on LNG, a move the company estimates will reduce fuel costs by $15-20 million per year.  Second, Chesapeake will convert at least 100 of its drilling rigs and all of its planned hydraulic fracturing equipment to run on LNG, which Chesapeake estimates will save the company an additional $230 million per year in fuel savings. 

A copy of Chesapeake's news release can be found on its website here.

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